GIFT  OF 


QTPT 

MOV  23  1017 


RL28 


LOAN  SHARKS  AND  LOAN  SHARK 
LEGISLATION  IN  ILLINOIS 


BY 


EARLE  EDWARD  EUBANK 


Reprinted  from  the 

Journal  of  the  American  Institute  of  Criminal  Law  and 
Criminology,  Vol.  VIII,  No.  I,  May,  1917 


DIVISION  OF  REMEDIAL  LOANS 

RUSSELL  SAGE  FOUNDATION 
130  EAST  22ND  STREET,  NEW  YORK  CITY 


JUNE,  1917 


(>t  I 


SOME  PUBLICATIONS  ISSUED  BY  vl 

DIVISION   OF   REMEDIAL   LOANS 
RUSSELL  SAGE  FOUNDATION 

(Unless  otherwise  noted,  single  copies  free) 

RL    9.     The  Usurer's  Grip.     By  Arthur  H.  Ham. 

A  motion-picture  film  on  the  evils  of  the  usurious  money-lending 
business.  (Leaflet)  1912. 

RL  11.  Work  of  the  Remedial  Loan  Societies,  1911-1912.  (Statistical 
folder)  1912. 

RL  14.     The  Loan  Shark  Campaign.      By  M.  W.  Davis.     8  p.     1914. 

RL   15.     A  Credit  Union  Primer.     By  Arthur   H.    Ham  and  Leonard   G. 

Robinson. 

Contains  a  brief  history  of  co-operative  credit,  a  definition  of  its 
field  in  the  United  States,  an  outline  of  the  elementary  principles 
of  credit  unionism,  together  with  model  by-laws,  necessary  books 
and  forms,  instructions  for  organizing,  and  the  New  York  credit 
union  law.  79  p.  1914.  (25  cents.) 

RL  16.     The  Co-operative  People's  Bank.     By  Alphonse  Desjardins. 

The  evolution  of  the  co-operative  bank,  the  Canadian  system,  its 
growth  and  accomplishments.  42  p.  1914.  (15  cents.) 

RL  17.  Bulletin  of  National  Federation  of  Remedial  Loan  Associations, 
Dec.,  1914.  Proceedings,  sixth  annual  convention,  Philadelphia, 
Pa.,  July  9-11,  1914.  66  p.  1915. 

RL   19.     Credit  Unions  and  their  Relation  to  Savings  and   Loan  Associa- 

tions.    By  Arthur  H.  Ham. 

An  address  delivered  before  the  State  League  of  Savings  and  Loan 
Associations,  Port  Jervis,  N.  Y.,  June  10,  1915.  12  p.  1915. 

RL  20.  Bulletin  of  National  Federation  of  Remedial  Loan  Associations, 
July,  1915.  Proceedings,  seventh  annual  convention,  Baltimore, 
Md.,  May  13-15,  1915.  95  p.  1915. 

RL  21.  Work  of  the  Remedial  Loan  Societies,  1914-1915.  (Statistical 
folder)  1915. 

RL  22.  Determining  Credit.  A  Suggestive  Method  for  Credit  Committees 
of  Credit  Unions.  Devised  by  R.  S.  Hale.  8  p.  1916. 

RL  23.  The  Object  of  the  Credit  Union.  A  Reply  to  Myron  T.  Herrick. 
By  Arthur  H.  Ham.  12  p.  1916. 

RL  24.     People's  Banks.     By  Arthur  H.  Ham.     16  p.     1916. 

RL  25.  Bulletin  of  National  Federation  of  Remedial  Loan  Associations, 
Nov.,  1916.  Proceedings,  eighth  annual  convention,  Detroit, 
Mich.,  June  22-24,  1916.  51  p.  1916. 

RL  26.  Work  of  the  Remedial  Loan  Societies,  1915-1916.  (Statistical 
folder)  1916. 

RL  27.  Credit  Unions  (Co-operative  People's  Bank),  Their  Development 
and  Purpose.  In  Yiddish.  By  Morris  Caesar.  52  p.  1916. 
(25  cents.) 

RL  28.  Loan  Sharks  and  Loan  Shark  Legislation  in  Illinois.  By  Earle 
Edward  Eubank.  16  p.  1917. 

No.  5.  Co-operative  Credit.  A  Selected  Bibliography.  Bulletin  of  Russell 
Sage  Foundation  Library,  June,  1914.  (5  cents.) 


LOAN  SHARKS  AND  LOAN  SHARK  LEGISLA- 
TION IN  ILLINOIS 

EARLE  EDWARD  EUBANK1 

The  question  of  usury  is  by  no  means  a  new  one.  It  is  almost 
as  old  as  the  human  race,  certainly  as  old  as  any  financial  system. 
In  earlier  periods  of  history,  interest — payment  for  the  use  of 
money, — and  usury — payment  in  excess  of  the  rate  allowed  by 
law, — were  used  as  synonymous  terms,  and  any  attempt  to  extract 
a  fee  for  the  use  of  a  loan  was  looked  upon  as  immoral.  Solon, 
archon  of  ancient  Athens,  forbade  it  by  law,  a  position  which  So- 
crates and  Plato  later  endorsed  on  ethical  grounds.  In  mediaeval 
England,  as  late  as  the  thirteenth  century,  Parliament  made  all 
payments  for  the  use  of  money  illegal. 

The  impracticability  of  doing  away  with  interest  entirely  by 
means  of  legislation  has  been  commonly  apparent,  however, 
wherever  attempted  and  legislative  bodies  have  for  the  most 
part  given  consideration  to  the  question  of  the  establishment 
and  enforcement  of  fair  and  practical  rates  for  loans  rather  than 
to  measures  for  their  complete  suppression.  That  this  question 
should  be,  as  it  is,  one  of  universal  interest  is  in  itself  indicative 
of  the  abuses  to  which  the  borrower  everywhere  has  been  sub- 
jected during  many  generations  by  the  unscrupulous  money- 
lender. 

In  practically  every  city  and  large  town  in  the  United  States 
today  men  exist  who  make  a  business  of  exploiting  the  financial 
extremity — actual  or  imagined — of  individuals  who  are  unable  or 
unwilling  to  utilize  the  ordinary  channels  for  securing  money. 
These  persons,  professional  money-lenders,  use  the  urgent  neces- 
sity of  their  patrons  to  exact  from  them  in  illegal  ways  usurious 
rates  of  interest,  extortionate  fees  and  special  charges,  mounting 

1  Professor  of  Sociology,  Young  Men's  Christian  Association  College, 
Chicago. 


3G5S61 


up  in  some  cases  to  hundreds  of  per  cent,  a  year.  They  have, 
in  many  instances  as  organized  compass,  built  up  a  systematic 
technique  of  business,  none  the  less  effective  because  contrary  to 
law.  Elaborate  devices  for  holding  old  trade  and  securing  new, 
reprehensible  ways  of  collecting  illegal  charges,  skilful  processes 
for  evading  the  law — these  are  worked  out  with  consummate  skill. 

To  this  class  of  money-lenders 'popular  speech  has  applied  the 
descriptive  term  "loan  shark;'.',  an  unmistakable  phrase  which 
has  found  a  place  for  itself  in  our* common  language. 

Chicago  has  been  the  happy  hunting  ground  of  the  usurer  for 
many  years.  Not  only  is  business  exceptionally  good,  but  the 
law  has  been  such  that  an  operator  could  carry  on  his  transactions 
without  personal  risk. 

While  the  loan  shark  situation  has  long  been  generally  known 
to  be  bad,  no  definite  statement  as  to  its  extent  and  organization 
was  possible  up  to  a  few  months  ago.  Between  June  and  No- 
vember, 1916,  the  Department  of  Public  Welfare  of  the  city  of 
Chicago  undertook  to  make  a  survey  of  the  situation  in  order  that 
it  might  present  a  concrete  array  of  facts  concerning  the  activities 
of  the  loan  shark  in  the  city  which  would  open  the  eyes  of  the 
community  to  the  methods  by  which  the  business  was  being 
carried  on,  and  its  enormous  volume.  It  was  hoped  that  the 
information  thus  secured  might  serve  as  a  basis  for  constructive 
measures  dealing  with  the  situation.  So  questionable  an  occupa- 
tion does  not  seek  publicity,  and  considerable  time  and  patience 
were  required  in  getting  at  the  facts.  Altogether  the  names  and 
addresses  of  229  definite  concerns,  139  of  which  were  actually 
engaged  in  business  on  November  1st,  1916,  were  secured.  Spe- 
cific cases  of  extortion  with  verifiable  details  are  on  file  against 
199  of  the  number,  and  against  the  others  there  is  conclusive 
circumstantial  evidence.  How  many  firms  or  individuals  escaped 
detection  there  is  no  way  of  telling. 

Of  the  concerns  observed  the  rate  of  interest  (whether  in  the 
form  of  a  bona  fide  interest  charge,  or  cloaked  under  the  name  of 
"fee"  for  service,  extension  or  renewal)  ranged  from  10%  to  40% 
per  month.  In  occasional  instances  the  rate  was  even  higher. 
The  volume  of  business  ranged  from  $40,000  per  year  in  the 
smaller  concerns  up  to  $300,000  in  the  larger,  the  average  being 
about  $85,000  per  year,  or  more  than  $11,000,000  annually  in 

4 


Chicago  alone  in  the  hands  of  the  139  companies  in  active  busi- 
ness when  the  report  was  published. 

A  cardinal  principle  of  the  loan-shark  business  is  that  it  shall 
be  carried  on  with  as  little  conspicuousness  as  possible.  Numbers 
of  designations  are  employed  with  the  intent  of  concealing  the 
true  character  of  the  concern.  Professional  usurers  are  found  in 
the  telephone  directory  under  all  of  the  following  classifications: 
Investments  and  Securities,  Real  Estate,  Coal  Dealers,  Lawyers, 
Tailors,  Banks,  Manufacturers'  Agents,  Collections. 

The  loan  shark  "clearing  house"  has  its  headquarters  in  an 
office  on  Dearborn  street,  but  the  glass  door  is  devoid  of  any  busi- 
ness insignia  whatsoever.  "Commercial  paper"  is  a  designation 
on  the  office  door  and  the  business  stationery  of  one  concern. 
Among  those  most  difficult  to  reach,  and  most  harmful,  are  those 
which  pose  as  banks  and  use  such  descriptive  terms  as  "United 
States,"  "People's,"  "Illinois,"  "Federal,"  "State,"  as  a  part  of 
their  titles  to  give  the  impression  that  they  are  doing  a  regular 
banking  business  or  are  in  some  way  connected  with  the  govern- 
ment. 

Comparatively  few  loan-shark  companies  are  incorporated, 
partly  because  incorporation  would  necessitate  keeping  inde- 
finitely the  name  which  is  written  into  the  charter.  This  would 
be  exceedingly  inconvenient  for  some  of  them  which  make  it  a 
practice  to  change  names  from  time  to  time  as  one  grows  too  un- 
popular. 

The  complete  list  of  229  names  and  addresses  of  money-lenders 
was  sent  by  the  Department  of  Public  Welfare  to  the  Secretary  of 
State  of  Illinois  with  a  request  that  his  office  should  indicate  which 
of  them  had  been  incorporated,  together  with  the  date  and  pur- 
pose for  which  they  were  chartered.  Of  the  229  only  18  were 
found  that  had  been  chartered  in  Illinois  at  any  time,  and  of  the 
1 8,  nine  had  already  been  cancelled,  in  most  cases  for  failure  to 
file  an  annual  report  as  required  by  law. 

The  purpose  of  incorporation  where  specified  is  worthy  of  note. 
The  exact  language  of  a  number  of  charters  follows  as  it  was  found 
in  several  illustrative  cases : 

i.  "To  conduct  a  general  lunch-counter,  restaurant  and  hotel 
business  and  to  do  and  perform  all  the  necessary  business  inci- 
dent thereto." 

5 


2.  "For  the  examination  of  titles  to  real  and  personal  estate, 
to  furnish  information  upon  which  to  base  credits,  to  transact  a 
general  collection  business." 

3.  "  For  the  manufacturing  and  sale  of  dry  goods." 

4.  "For  the  purpose  of  carrying  on  the  business  of  buying 
and  selling  bonds  and  other  securities." 

5.  "To  manufacture  and  deal  in  furniture,  stoves,  rugs,  and 
all  kinds  of  household  properties." 

6.  "For  the  purpose  of  raising,  harvesting  and  dealing  in  leaf 
tobacco ;  to  purchase  and  own  real  estate  in  connection  with  said 
business,  and  to  transact  any  legitimate  business  coming  within 
the  province  of  this  corporation  as  regards  the  purchase  and  sale 
of  personal  property." 

7.  "For  the  purpose  of  purchasing  and  presenting  plays  in 
carrying  on  the  theatrical  business." 

Definitely  chartered  for  such  objectives  as  the  foregoing,  vari- 
ous loan  firms  freely  use  the  term  "incorporated"  upon  their 
printed  matter,  conveying  the  impression  that  they  have  been 
incorporated  for  loan  purposes  particularly.  As  a  matter  of 
fact  not  a  single  one  of  the  charters  which  were  recorded  by  the 
Secretary  of  State  carries  within  it  any  provision  for  doing  a 
money-lending  business. 

Not  one  in  20,  as  the  report  of  the  Secretary  of  State  shows, 
is  incorporated.  The  business  is  too  shifty  to  desire  the  perma- 
nence and  fixity  of  name  which  incorporation  would  give.  Change 
of  name  is  resorted  to  frequently  because  of  the  unpleasant  con- 
nections which  are  associated  with  it  after  it  has  been  running 
awhile.  This  gives  it  a  mushroom-like  character  and  complicates 
investigation.  Circulars  appear  every  two  or  three  weeks  advising 
the  public  that  a  "new"  company  has  begun  business  at  such  and 
such  an  address.  As  a  matter  of  fact  the  only  new  thing  about 
the  company  is  the  name.  The  management  and  capital  and 
outstanding  claims  of  some  company  that  has  "gone  out  of  busi- 
ness" merely  take  up  a  new  designation  and  continue  the  even 
tenor  of  their  way. 

The  success  of  the  money-lending  business,  as  that  of  any  other 
that  requires  a  market,  depends  upon  its  ability  to  get  its  offerings 
effectively  before  the  public.  The  columns  of  the  daily  papers 
afford  the  best  medium  for  this  and  they  were  extensively  used 

6 


in  Chicago  so  long  as  they  were  open  to  loan-shark  advertising. 
With  one  or  two  exceptions  this  privilege  has  been  withdrawn  by 
the  Chicago  press  and  other  forms  of  advertising  have  had  to 
be  developed.  Literature  is  distributed  freely  through  the  resi- 
dence sections  of  the  city;  personal  solicitors  are  at  work,  the 
agent  sometimes  being  a  debtor  himself  who  obtains  a  reduction 
in  his  account  as  a  commission  for  drumming  up  new  trade.  Still 
another  method  of  getting  in  touch  with  prospects  is  that  of  ex- 
changing names  with  other  money-lenders,  the  names  exchanged 
being  those  of  former  customers  who  have  ceased  to  be  profitable 
to  the  original  firm. 

The  essence  of  the  power  of  the  loan  shark  over  his  victim  in 
Chicago  as  elsewhere  is  the  victim's  ignorance, — first,  ignorance, 
due  to  carelessness  in  many  instances,  of  the  obligations  which 
he  signs  when  he  receives  his  loan;  second,  ignorance  as  to  what 
his  rights  really  are  under  the  law;  third,  ignorance  as  to  the 
means  of  redress  which  are  available  after  he  has  discovered  the 
plight  in  which  he  is.  With  reference  to  the  first  of  these  the 
loan -shark  system  has  worked  out  an  elaborate  set  of  forms) 
guarantees  and  assignments,  which  the  borrower  is  required  to 
sign  before  he  can  get  the  money.  Usually  he  does  not  read  the 
papers  signed,  and  if  he  should  he  would  not  dare  protest,  for 
he  wants  the  money  and  he  is  made  to  feel  all  the  while  that  the 
lender  is  doing  him  a  personal  favor  by  letting  him  have  it,  and 
therefore,  he  must  not  ask  too  many  questions.  He  may  or 
may  not  know  it,  but  he  has  probably  signed  all  of  the  following 
papers:  first,  notes  for  the  money  borrowed  (separate  notes  for 
the  principal  and  interest,  so  that  in  case  he  should  subsequently 
discover  his  rights  and  protest  against  the  interest,  the  note 
for  the  principal  would  appear  as  a  separate  item) ;  second,  an 
assignment  of  his  wages  to  the  lender  (in  case  of  the  salary  loan 
shark)  to  be  drawn  on  in  case  he  fails  to  pay  up;  third,  usually  a 
further  security  in  the  form  of  a  mortgage  on  his  household  effects; 
and  fourth,  a  power  of  attorney  to  be  vested  in  the  loan  shark 
himself.  No  copies  of  these  are  given  to  the  borrower,  so  he  has 
no  way  thereafter  of  proving  what  he  has  or  has  not  signed. 
Neither  are  receipts  given  for  amounts  paid  in,  nor  the  docu- 
ments returned  which  he  originally  signed. 

But  the  loan  shark  knows  that  when  taken  into  court  even  so 

7 


formidable  an  array  of  documents  will  have  no  binding  power  to 
compel  his  patron  to  pay  interest  in  excess  of  the  seven  per  cent, 
permitted  by  law.  He  therefore  makes  use  of  the  borrower's 
ignorance  to  the  fullest  and  works  upon  it  with  a  monumental 
bluff.  He  knows  that  he  must  rely  more  upon  threats  than  upon 
his  legal  security. 

In  the  campaign  against  loan  sharks  in  Cleveland  about  three 
years  ago,  Mr.  Poulson,  the  city  prosecutor,  captured  some  of  the 
confidential  instructions  issued  to  loan-shark  managers,  among 
others  a  36-page  book  entitled,  Blank's  "Book  of  Instructions." 
This  man,  who  bears  the  title  of  "King  of  the  Loan  Sharks,"  in 
his  own  advertisement  some  time  ago  claimed  to  be  doing  a  busi- 
ness in  66  cities  of  the  country.  Some  quotations  from  these 
confidential  papers  were  presented  at  the  Baltimore  convention 
of  the  National  Federation  of  Remedial  Loan  Associations  in 
1915  by  Mr.  John  E.  Taylor,  manager  of  the  Equitable  Collateral 
Loan  Company  of  Youngstown,  Ohio.  The  following  extracts 
convey  a  graphic  picture  of  loan-shark  methods : 

"Do  not  get  timid  on  account  of  the  kicks  by  customers.  Do 
not  allow  too  much  sympathy,  when  they  come  around  with  hard- 
luck  tales." 

"Use  'soft-soap'  talk  on  the  borrower  only  after  you  have 
tried  stones  and  gravel.  If  a  customer  mentions  the  law,  hunch 
your  shoulders  and  say  you  do  not  know  much  about  it." 

"  Bluff  the  borrower  by  rattling  papers  in  your  desk.  Pretend 
to  phone  to  an  attorney,  but  hold  the  phone  closed.  Remember 
the  whole  proceeding  is  more  or  less  of  a  bluff.  Give  your  cus- 
tomer good  hard  roasts." 

"In  the  case  of  a  dead-beat,  you  might  bring  up  the  point  of  a 
new  law,  and  do  whatever  bluffing  you  want  to;  but  to  talk  to 
customers  in  general  about  new  laws  I  do  not  approve.  There  is 
no  use  putting  the  notion  into  their  heads,  as  they  would  probably 
go  and  see  somebody  to  find  out  what  the  new  law  is.  The  result 
would  be  more  apt  to  harm  us  than  do  us  any  good." 

"You  can  say  anything  you  like  to  a  customer  in  a  sealed  letter 
so  long  as  it  is  not  criminal  threats,  immoral  or  indecent." 

"We  need  managers  with  bull-dog  determination.  Get  some 
attorney  who  will  sell  you  his  legal  letter-heads  and  then  write 
your  customers  upon  them." 

8 


Mr.  Taylor,  in  his  interesting  paper,  speaks  as  follows  on  his 
experience  in  loan-shark  methods: 

"Sometimes  legal  looking  notices  are  sent  to  the  victims,  such 
as  'garnishee  demand/  'demand  notice,'  'notice  of  judgment,' 
'original  notice  before  suit,'  and  some  loan  sharks  have  gone  so 
far  as  to  have  letters  printed  purporting  to  come  from  a  local 
collecting  bureau.  One  of  these  notices  which  recently  came  into 
my  hands  was  entitled  'Ultimo  notitia' — a  very  legal  looking 
scrap  of  paper  prepared  and  delivered  in  such  a  way  that  the 
victim  would  think  it  came  from  the  civil  branch  of  the  Munici- 
pal Court.  All  these  notices  have  a  certain  legal  look  about 
them  in  the  eyes  of  the  unsophisticated  victim,  and  oftentimes 
bear  fruit,  at  which  the  loan  shark  chuckles  to  himself  and  says, 
'Well,  once  again  the  bluff  worked  beautifully.' " 

The  average  outsider  does  not  know  of  the  complex  organiza- 
tion of  the  money-lending  business.  He  thinks  of  each  operator 
as  more  or  less  isolated  in  his  operation,  bound  to  his  fellow 
usurers  by  a  "consciousness  of  kind,"  it  is  true,  but  separated 
from  them  by  barriers  of  competition.  He  is  amazed  when  he 
learns  of  the  close  interrelation  which  exists  among  the  leading  ones 
and  of  the  high  form  of  organization  which  the  business  manifests. 
The  larger  operators  do  not  confine  themselves  to  a  single  city. 
A  number  of  the  Chicago  firms  are  branch  houses  of  a  larger  con- 
cern which  operates  in  many  states.  One  of  these  some  time  ago 
was  doing  business  in  over  60  cities.  Recently  there  appeared 
as  witness  in  a  loan-shark  case  before  Judge  Landis  in  the  Federal 
Court  a  manager  of  a  money-lending  firm  who  reluctantly  testi- 
fied that  the  owner  of  his  company  was  the  owner  of  nearly  70 
others  scattered  about  the  country.  Eastern  capital  is  found 
financing  certain  of  the  firms  and  in  one  or  two  instances  the  firms 
are  chartered  in  another  state.  Not  only  this,  but  records  show 
that  in  many  instances  the  real  backers  of  loan-shark  concerns 
are  persons  of  influence  and  prestige  in  their  communities,  some- 
times prominent  in  church,  fraternal  and  social  life. 

In  Chicago  the  leading  operators  have  banded  themselves  to- 
gether into  an  organization  known  as  the  "clearing  house."  This 
organization,  founded  in  1895,  is  a  close  corporation  of  the 
severest  type,  admitting  new  members  only  after  most  rigid  in- 
vestigation. Its  work  is  carried  on  with  the  utmost  secrecy. 

9 


No  designation  of  any  kind  appears  on  its  office  doors.  Its  mem- 
bers are  known  not  by  name,  but  by  number,  and  the  designating 
number  is  employed  in  all  communications  between  member  and 
clearing  house  and  between  members  themselves.  In  telephone 
conversations  no  information  is  vouchsafed  until  the  pass-word 
has  been  given.  The  expenses  are  met  by  a  monthly  membership 
fee  paid  by  each  affiliated  concern. 

The  main  purpose  of  the  organization  is  to  supply  its  members 
quickly  with  information  as  to  applicants  for  loans,  in  this  way 
saving  time  and  expense  which  would  be  necessitated  by  separate 
investigations.  In  the  files  of  the  clearing  house,  ready  indexed 
for  quick  access,  are  the  records  of  all  persons  who  have  borrowed 
in  the  past  from  any  member  of  the  association.  Everything  is 
recorded  which  may  serve  to  indicate  whether  or  not  the  appli- 
cant is  desirable :  his  place  of  business,  standing  in  the  commun- 
ity, how  often  he  has  borrowed  previously,  ready  or  slow  pay,  etc. 
When  a  new  application  is  made  to  any  member  of  the  clearing 
house,  the  applicant  is  immediately  looked  up  to  see  whether  any 
record  already  exists  concerning  him,  whether  he  is  owing  money 
to  some  other  concern  and  how  much,  and  kindred  matters.  Per- 
sons who  have  dropped  out  of  sight  of  one  firm  without  settling 
accounts  in  full  may  be  located  through  the  clearing  house  in 
case  they  should  later  make  application  to  another  member, 
ignorant  of  the  existence  of  this  information  exchange. 

Three  times  a  day  young  women  " runners"  make  the  rounds  of 
the  clearing  house  membership  to  secure  the  names  and  addresses 
and  other  information  concerning  new  applicants  for  loans.  This 
information  is  checked  up  with  the  records  already  filed  in  the 
central  office  and  the  result  reported  back  to  the  office  to  which 
the  applicant  has  just  come. 

With  such  a  system  great  expedition  is  possible,  and  the  answer 
may  be  given  to  the  applicant  within  a  few  hours  as  to  whether  a 
loan  may  be  granted.  Of  course  the  clearing  house  can  afford  no 
information  concerning  transactions  with  non-clearing  house 
members,  but  it  is  remarkably  efficient  within  its  own  field.  It 
also  serves  as  a  ready  instrument  of  communication  among  those 
who  compose  it. 

Of  late  years,  as  public  opinion  against  the  loan-shark  business 
has  been  growing,  the  movement  against  it  has  gained  strength. 

10 


In  a  rough  way  we  may  classify  opposition  under  the  following 
heads:  I,  Publicity  campaigns.  2,  Organized  defense  of  loan 
shark  victims.  3,  Loan  shark  substitutes.  4,  Legislation.  These 
cannot  be  marked  off  from  one  another  sharply;  they  are  inter- 
woven. Legislation,  organized  defense  and  loan-shark  substi- 
tutes have  come  about  after  public  opinion  has  been  aroused  by 
publicity  campaigns.  Likewise  certain  of  the  substitutes  which 
now  exist  have  required  special  legislation  before  they  could  be 
formed. 

Constructive  opposition  to  extortionate  money-lending  is  gen- 
erally recognized  to  head  up  in  the  Division  of  Remedial  Loans  of 
the  Russell  Sage  Foundation,  of  which  Mr.  Arthur  H.  Ham  is 
director.  Mr.  Ham  began  his  work  as  agent  for  the  study  of 
remedial  loan  societies  in  October,  1909.  Since  his  appointment 
he  has  been  particularly  active  in  assisting  to  organize  new  reme- 
dial loan  agencies  and  in  securing  legislation  in  the  various  states. 

Publicity  campaigns  against  the  loan  shark  are,  within  certain 
limitations,  considerably  effective.  They  are  instrumental  in 
educating  the  public  and  in  creating  public  opinion  against  the 
culpable  methods  which  are  a  part  of  the  trade.  When  the  inter- 
est of  the  community  begins  to  wane  the  campaign  loses  its 
force,  as  is  evidenced  by  the  history  of  the  loan-shark  campaigns 
which  have  been  conducted  in  various  cities. 

Organized  defense  of  loan-shark  victims,  growing  largely  out  of 
interest  aroused  by  publicity  campaigns  is  highly  valuable  in 
assisting  individual  cases,  although  it  does  not  in  itself  strike  at 
the  root  of  the  trouble.  The  Chicago  Legal  Aid  Society  during 
its  past  three  fiscal  years  has  settled  1,266  cases,  with  a  total 
saving  of  $16,884.88.  The  First  State  Industrial  Wage  Loan 
Society  of  Chicago  has  had  from  its  inception  the  defense  of  the 
borrower  against  the  loan  shark  as  one  of  its  leading  objects. 
From  its  opening  in  November,  1913,  to  June  1st,  1916,  the  so- 
ciety had  made  2,004  loan-company  settlements,  which  had  saved 
to  its  clients  approximately  $19,000  in  excessive  interest  charges. 
To  the  large  number  of  settlements  made  by  these  two  societies 
must  be  added  those  handled  at  various  times  by  the  members  of 
the  Chicago  Tribune  Anti-Loan-Shark  Bureau.  Fifteen  months 
after  it  had  been  established,  its  director,  Mr.  Daniel  P.  Trude, 
stated  that  "altogether  approximately  5,000  accounts  have  been 

II 


taken  under  consideration  by  the  Bureau  and  the  majority  set- 
tled, for  the  Bureau  has  found  that  the  loan  sharks  have  contested 
in  the  court  less  than  three  per  cent,  of  the  cases."  Besides  these 
definite  agencies  for  organized  defense  of  the  small  borrower  there 
have  been  a  number  of  individuals  who  have  rendered  genuine 
service  in  legal  and  advisory  capacities,  usually  without  any 
charge.  If  the  amounts  saved  to  those  who  have  been  helped 
seem  somewhat  small  it  should  be  remembered  that  loans  of  this 
kind  are  made  to  people  who  are  on  small  incomes,  often  to  those 
in  extreme  circumstances,  and  that  a  very  few  dollars  saved  may 
mean  a  great  deal  to  them.  In  many  cases  the  settlements  mean 
the  rescue  of  people  who  have  been  for  years  in  financial  servi- 
tude,— a  much  more  important  matter  than  the  money  which  is 
involved. 

Mr.  Raymond  B.  Fosdick,  formerly  commissioner  of  accounts  in 
New  York  City,  in  discussing  remedial  loans  before  the  Academy  of 
Political  Science,  November  nth,  1911,  epitomized  a  truth  which 
all  students  of  the  loan-shark  subject  sooner  or  later  discover: 

"Before  any  campaign  to  oust  the  loan  shark  can  be  effective, 
there  must  be  some  agency  equipped  and  prepared  to  take  its 
place.  Indeed,  no  campaign  of  extermination  will  ever  succeed. 
No  amount  of  condemnation  will  ever  be  effective.  No  negative 
laws,  however  drastic,  can  permanently  relieve  the  present  abuses. 
As  long  as  we  have  citizens  who  want  to  borrow  money — and  we 
shall  always  have  them — so  long  will  loan  agencies  of  some  kind 
continue,  and  it  is  only  the  better  kind  that  will  succeed  in  driving 
out  the  worse." 

This  desire  to  borrow  money  may  be  legitimately  born  of 
necessity  growing  out  of  extremities  beyond  the  power  of  the  in- 
dividual to  avoid.  It  may  be  born  of  lack  of  thrift  or  of  ex- 
travagance, but  there  will  always  be  persons  needing  funds  to 
tide  over  emergencies  and  willing  to  go  to  almost  any  length  to 
secure  them.  If  legislation  does  no  more  than  drive  the  loan 
shark  under  a  more  careful  cover,  it  will  only  accentuate  the  evil 
by  forcing  him  to  still  more  exorbitant  charges  for  the  greater 
risk  involved,  and  there  will  always  be  men  willing  to  take  the 
risk  if  it  can  be  made  profitable.  When  legislation  against  the 
loan  shark  goes  on  the  statute  books  it  is  necessary  that  there 
be  set  up  substitutes  for  him — agencies  of  one  sort  or  another 

12 


that  can  minister  to  the  very  real  need  which  has  for  centuries 
been  the  fundamental  reason  for  the  existence  of  the  loan  shark. 
In  looking  over  the  various   types  of  substitutes  one  may 
roughly  group  them  in  four  classes: 

1.  The  purely  philanthropic,  which,  whether  under  a  religious 
organization  or  a  non-sectarian  charity  or  fraternal  order,  oper- 
ates a  loan  fund,  charging  no  rate  of  interest  to  the  borrower.     In 
this  respect  it  is  a  charity  pure  and  simple  and  should  be  con- 
sidered just  as  much  so  as  a  gift  of  food  or  clothing  or  rent. 

2.  The  semi-philanthropic  organization,  which  is  established 
primarily  for  the  sake  of  the  borrower,  but  is  capitalized  and  run 
upon  business  principles,  not  only  paying  expenses,  but  giving  a 
small  profit  to  its  backers.     The  members  of  the  National  Federa- 
tion of  Remedial  Loan  Associations  are  almost  entirely  of  this 
character.     These  are  business  organizations  with  a  social  pur- 
pose, and  should  be  described  as  such.     They  are  not  charitable 
in  the  sense  of  giving  something  for  nothing,  and  they  are  not 
commercial  in  the  sense  of  being  primarily  money-making  enter- 
prises.    Their  dividends  are  usually  limited  by  law. 

3.  The  purely  business  type,  which  is  organized  primarily  as  a 
matter  of  investment.     While  it  may  serve  a  definite  social  pur- 
pose, it  is  not  organized  for  that  purpose  and  performs  it  only 
incidentally.     These  organizations  keep  within  the  law  and  so  are 
not  to  be  confused  with  the  loan  shark  whose  characteristic  is 
that  of  usurious  money-lending. 

4.  The  self-help  type,  which  is  probably  the  most  constructive 
of  all.     It  is  exemplified  in  employes'  co-operative  savings  and 
loan  associations,  and  in  the  credit  union,  which  is  growing  in 
popularity  in  the  United  States.     This  latter  form  of  organiza- 
tion, known  in  Europe  for  65  years,  is  composed  of  individuals 
who  are — to  quote  the  language  of  the  Massachusetts  law  of 
1909 — "associated  by  reason  of  residence,  occupation,  fraternal 
association  or  otherwise."     Its  objects  are   the  promotion   of 
savings  and  investments  among  its  members  and  the  provision  for 
a  convenient  source  for  legitimate  loans.     Organizations  of  the 
self-help  type  put  a  premium  upon  thrift  and  saving  and  the  ele- 
ment of  mutual  benefit,  appraise  character  at  its  true  value  and 
recognize  it  as  a  definite  form  of  security.     An  added  advantage 
resides  in  the  fact  that  they  are  independently  organized  by  each 

13 


group,  upon  whose  members  themselves  must  depend  success  or 
failure. 

Valuable  as  they  are  in  helping  to  meet  the  loan-shark  problem, 
publicity  campaigns,  organized  defense  and  systematic  competi- 
tion by  means  of  social-spirited  loan  organizations  can  do  little 
until  the  small  loan  business  is,  in  its  entirety,  definitely  regulated 
by  law.  The  inadequacy  of  the  present  Illinois  statute  is  clear 
upon  its  face  (Kurd's  Revised  Statutes,  1915-1916,  p.  1580,  chap. 
74,  sections  4,  5,  and  6) : 

"Seven  Per  Cent.  May  be  Contracted  for.  In  all  written  con- 
tracts it  shall  be  lawful  for  the  parties  to  stipulate  or  agree  that 
seven  (7)  per  cent,  per  annum,  or  any  less  sum  of  interest,  shall 
be  taken  and  paid  upon  every  one  hundred  dollars  ($100)  of 
money  loaned  or  in  any  manner  due,  or  owing  from  any  person 
or  corporation  to  any  other  person  or  corporation  in  this  state, 
and  after  that  rate  for  a  greater  or  less  sum,  or  for  a  longer  or 
shorter  term,  except  as  herein  provided. 

11  No  Greater  Rate  Shall  Be  Contracted  for.  No  person  or  cor- 
poration shall,  directly  or  indirectly,  accept  or  receive,  in  money, 
goods,  discount  or  thing  in  action,  or  in  any  other  way,  any  greater 
sum  or  greater  value  for  the  loan,  forbearance  or  discount  of  any 
money,  goods  or  thing  in  action,  than  as  above  prescribed. 

" Penalty  for  Contracting  for  More  Than  Seven  Per  Cent.  If  any 
person  or  corporation  in  this  state  shall  contract  to  receive  a 
greater  rate  of  interest  or  discount  than  seven  (7)  per  cent,  upon 
any  contract,  verbal  or  written,  such  person  or  corporation  shall 
forfeit  the  whole  of  said  interest  so  contracted  to  be  received,  and 
shall  be  entitled  only  to  recover  the  principal  sum  due  to  such  per- 
son or  corporation.  And  all  contracts  executed  after  this  act 
shall  take  effect,  which  shall  provide  for  interest  or  compensation 
at  a  greater  rate  than  herein  specified,  on  account  of  non-payment 
at  maturity,  shall  be  deemed  usurious,  and  only  the  principal  sum 
thereon  shall  be  recoverable." 

As  it  stands,  this  is  a  law  practically  without  penalty,  inasmuch 
as  the  money-lender,  however  unjust  he  may  have  been  in  his 
dealings,  is  guaranteed  his  principal  in  any  event.  Furthermore, 
the  Illinois  courts  have  held  on  this  point  that  interest  in  excess 
of  the  legal  rate  cannot  be  recovered  once  the  borrower  has  volun- 
tarily paid  it.  Such  a  law  as  this  makes  the  position  of  the  ex- 


tortionate  money-lender  one  of  perfect  safety.  Few  of  his 
patrons  know  what  the  law  is,  or  that  legal  redress  can  be  ob- 
tained by  carrying  a  claim  into  court;  fewer  still  are  financially 
able  to  seek  the  aid  of  the  court.  Should  any  particular  case  be 
decided  against  the  lender  and  the  interest  be  forfeited,  that  in 
itself  can  in  no  way  restrain  him  from  continuing  his  operations. 
Because  there  has  been  no  legal  provision  for  the  inspection  of 
his  books  or  records,  he  has  carried  on  his  business  without  fear 
of  interference.  The  abuses  which  citizens  of  Illinois  have  en- 
dured in  the  past  at  the  hands  of  unscrupulous  money-lenders 
have  been  accentuated  by  the  state's  indifference  to  the  need  of 
the  regulation  of  the  business. 

Following  the  survey  made  by  the  Chicago  Department  of 
Public  Welfare,  representatives  of  the  Industrial  Club,  the  Legal 
Aid  Society,  the  First  State  Industrial  Wage  Loan  Society,  the 
Illinois  Committee  on  Social  Legislation  and  other  organizations 
of  strong  civic  interest,  were  organized  into  a  committee  to  pre- 
pare a  bill  for  the  consideration  of  the  1917  session  of  the  General 
Assembly  of  Illinois.  The  bill  was  framed  with  the  assistance  of 
the  Division  of  Remedial  Loans  of  the  Russell  Sage  Foundation, 
and  it  embodied  the  results  of  the  best  experience  of  all  the  states 
which  have  attempted  to  regulate  the  business  of  making  small 
loans.  The  salient  features  of  the  bill  are  as  follows: 

1.  Any  person  or  organization  desiring  to  engage  in  the  busi- 
ness of  making  small  loans  (sums  of  $300  or  less)  shall  first  pro- 
cure a  license  from  the  Department  of  Trade  and  Commerce.   The 
license  shall  be  renewed  annually,  and  a  fee  for  the  same  shall  be 
paid.     A  bond  of  $1,000  shall  be  filed.     The  license  shall  apply 
to  only  one  firm  and  place  of  business,  is  not  transferable,  and 
may  be  revoked  for  violation  of  any  provision  of  the  act  under 
which  it  has  been  granted. 

2.  The  Department  of  Trade  and  Commerce  is  given  the 
authority  to  investigate  the  business  of  any  licensee  at  any  time 
and  as  often  as  it  may  desire ;  and  for  that  purpose  it  shall  have 
free  access  to  all  books  and  records  of  the  licensee. 

3.  To  all  persons  or  firms  which  are  licensed  under  this  act 
permission  is  given  to  charge  interest  not  to  exceed  3K%  Per 
month,  or  42%  per  annum.     It  has  been  determined  by  careful 
studies  that  this  is  as  low  a  rate  as  can  be  made  consistent  with 

15 


business  security  and  a  reasonable  profit  on  the  investment.  Be- 
cause of  the  heavier  overhead  expense  involved  in  the  individual 
transaction,  and  the  greater  risk,  ordinary  interest  rates  are  im- 
possible in  the  making  of  small  loans.  Admitting  the  desirability 
of  providing  for  that  part  of  the  public  to  whom  small  loans  are  a 
necessity,  it  is  considerably  better  to  allow  firms  to  organize  under 
a  law  which  will  permit  them  a  fair  profit  to  take  care  of  that 
necessity,  than  by  drastic  restriction  to  make  a  legitimate  busi- 
ness impossible. 

4.  Under  this  act  no  charge  is  allowed  other  than  the  stipu- 
lated interest,  which  is  to  be  computed  solely  on  unpaid  balances. 
Many  times  the  money-lender  exacts  usury  under  other  forms 
than  those  which  are  technically  classifiable  as  interest.     "Re- 
newal fees,"  "cost  of  extension,"  "appraisal  charges,"  "expenses 
of  investigation,"  etc.,  are  often  nothing  else  than  usury  in  dis- 
guise, and  therefore  must  be  guarded  against  carefully. 

5.  The  licensee  is  further  required  to  give  the  borrower  at  the 
time  the  loan  is  made  a  clear  statement  of  the  facts  and  terms  con- 
nected with  the  loan:   the  amount,  when  it  was  made,  when  it 
falls  due,  the  nature  of  the  security,  the  rate  of  interest,  and  a 
copy  of  the  law  governing  the  transaction.     He  is  required  to 
give  plain  and  complete  receipts  for  all  payments  made,  and  upon 
complete  repayment  of  the  loan  to  return  all  documents  signed 
or  pledges  made  when  the  loan  was  accomplished.     He  is  for- 
bidden also  to  accept,  in  connection  with  the  transaction,  any 
notes  or  pledges  signed  in  blank  to  be  filled  in  after  execution. 

6.  The  violation  of  any  provision  of  the  act  not  only  carries 
with  it  the  likelihood  of  having  the  license  revoked.     It  is  also 
made  a  misdemeanor,  for  which  a  maximum  penalty  of   $500 
fine,  or  six  months'  imprisonment,  or  both,  may  be  inflicted. 

Such,  in  brief,  are  the  provisions  of  the  proposed  law  for  meet- 
ing the  loan-shark  situation  in  Illinois.  Not  only  has  it  met  the 
approval  of  leading  students  of  the  problem,  but  it  has  been  en- 
dorsed by  certain  of  the  leading  loan  firms  as  well.1  The  latter, 
having  large  funds  tied  up  in  the  business,  are  anxious  to  continue; 
and  they  prefer  to  operate  in  the  open  as  legitimate  concerns 
recognized  by  law,  even  at  a  lower  rate  of  profit,  than  to  do  so  as 
outlaws  who  are  in  public  disrepute. 

bill  has  become  a  law  and  goes  into  effect  July  I,  1917. 
16 


Gaylord  Bros. 

Makers 

Syracuse,  IM.  Y. 
MT.JAN.2I.190S 


YC  23802 


UNIVERSITY  OF  CALIFORNIA  LIBRARY 


UNIVERSITY  OF  CALIFORNIA  LIBRARY, 
BERKELEY 


THIS  BOOK  IS  DUE  ON  THE  LAST  DATE 
STAMPED  BELOW 

Books  not  returned  on  time  are  subject  to  a  fine  of 
50c  per  volume  after  the  third  day  overdue,  increasing 
to  $1.00  per  volume  after  the  sixth  day.  Books  not  in 
demand  may  be  renewed  if  application  is  made  before 
expiration  of  loan  period. 


APR  i 


